Many people are now questioning the need to retire at 65. This is no longer seen as a huge milestone, especially for those with high levels of job satisfaction. Australians are also living longer and healthier lives, and the way we work and prepare for retirement is changing in response to these shifting situations. This is where Transition to retirement can come in.

Transition to retirement – also known as TTR – was introduced to help people ease into retirement, potentially cut back on working hours, and come to terms with changes to their lifestyle.

A TTR strategy is simply a pre-retirement pension paid from your super savings in the form of a ‘non-commutable’ income stream. Non-commutable means that you cannot take a lump sum while you’re still working, but income can be taken as regular payments, subject to an annual limit.

If you’re over preservation age and hold super funds, the Transition to Retirement rules could help to significantly boost your super balance without impacting your lifestyle.

It could even allow you to reduce your working hours by supplementing your reduced salary with payments from your super.

Who qualifies for a TTR strategy?

Anyone* who’s considering retirement and has reached their preservation age can access their super savings and qualify to use a TTR strategy.

*temporary residents can’t access a TTR pension

Find your preservation age:
Date of birthPreservation age
Before 1 July 196055
1 July 1960 - 30 June 196156
1 July 1961 - 30 June 196257
1 July 1962 - 30 June 196358
1 July 1963 - 30 June 196459
After 30 June 196460

Date of birth

If you’re a member of a defined benefit division, please ensure you get financial advice before pursuing a transition to retirement strategy, as this may have an impact on your final benefit amount. If you want to learn more, you can get simple advice over the phone or face to face. It’s included as a part of your membership so there’s no extra cost.

How does it work?

The Transition to Retirement rules allow you to deposit some (or most) of your current super savings into a pension or income stream account, which pays you a regular income.

At the same time, your super account continues to receive employer or salary sacrificed payments as further savings towards your eventual retirement. It’s beneficial because of the way tax is applied. Salary sacrifice arrangements use pre-tax dollars, which means you end up contributing more to your super than you withdraw, without reducing your income.

But more on this later…

There are rules that you need to consider, such as the minimum and maximum income that can be drawdown and no lump sum withdrawals are allowed.

It’s also important to make sure your super account has a balance that will continue to cover fees and any insurance premiums.

Everyone’s situation is different, some more complex than others, so you should seek professional advice before deciding if a TTR pension is right for you.

Important note

It’s important to know that in any given financial year, you must withdraw between 4% and 10% of the starting balance of the TTR income stream, depending on your age.

Once you turn 65, the TTR strategy will no longer apply and your account becomes an ordinary pension account (provided it is below the transfer balance cap of $1.6 million, which came into effect on 1 July 2017) which means this minimum amount will increase, and there will be no maximum drawdown limit.

You’ll have the flexibility to drawdown lump sum payments in addition to receiving regular income payments.

Case study: salary sacrifice

If you earned $100 a week, were over 60, and fell into the highest tax bracket, paying on average 45 cents in the dollar in tax, you would only receive $55 in your pay packet each week.

But if you sacrifice the $100 to super and replace this with income from a TTR income stream, the effect on the balance of your super account, excluding other factors, is an increase of $30 each week

Regular salarySalary sacrifice to super
Gross pay$100$100
Tax$45 (PAYG)$15 (super contributions tax)
Net$55$85
Net overall benefit of salary sacrificing$30

This is a very simplistic example and doesn’t take into account other factors such as the Medicare levy, other tax concessions, balance of super funds, fees, or a realistic level of income.

Try not to focus too much on how the calculations are worked out. In this example you’ll see how the change to the salary sacrificed amount affects the super balance, tax payable, and taxable income. You will see that your age also makes a big difference to your overall benefit.

Note: this example assumes a total income of less than $250,000 p.a. Higher superannuation contributions tax applies to those earning more than $250,000 p.a. (including super).

The main benefits of a TTR strategy

  • Maintain your current income level – allowing you to budget for your ongoing living and lifestyle expenses
  • Maximise your savings for retirement by continuing to contribute to your super
  • Potentially minimise your tax payable, particularly while you’re still working, which makes it easier to save
Meet Kerry

Kerry is 58. She has a taxable component of $150,000 in her super. She’s just starting to plan for her retirement but hasn’t set a date yet. However, in the short to medium term she’s decided to take advantage of a TTR pension and continue working.

Notice what happens to Kerry’s:

  • taxable income
  • tax payable
  • overall increase to her super
Pre-TTRUsing TTR
Income from work$60,000.00$60,000.00
Pension paymentsNil$15,000.00
Gross income$60,000.00$75,000.00
Less salary sacrificeNil$18,516.00
Taxable income$60,000.00$56,484.00
Less tax payable
Income tax and Medicare levy$12,147.00$8,631.00* (assumes 15% TTR tax rebate, using 2019/20 marginal tax rates)
Annual after-tax income$47,853.00$47,853.00
Additional super under TTR$3,516.00

By salary sacrificing to super and replacing this amount with a TTR income stream, you can see the overall increase in benefits to Kerry’s wealth, while her income remains the same.

This figure assumes a super balance of $150,000 and is a result of various calculations to maintain income level. It’s based on 100% tax payable component within super, and no contributions tax has been included. It’s an example only for a 55 year old and shouldn’t be taken as financial advice.

Source: Industry Fund Services.

Meet Richard

Let’s compare Kerry, who’s under 60, to Richard, who’s over 60. Richard has the same salary as Kerry, but note that his TTR income is completely tax free, as he’s over 60.See the additional boost he receives to his wealth, just by using the same strategy.

Again, pay careful attention to Richard’s:

  • taxable income
  • tax payable
  • overall increase to her super
Pre-TTRUsing TTR
Income from work$60,000.00$60,000.00
Pension paymentsNil$15,000.00
Gross income$60,000.00$75,000.00
Less salary sacrificeNil$23,354.00
Taxable income$60,000.00$36,646.00
Less tax payable
Income tax and Medicare levy$12,147.00$3,793.00
Annual after-tax income$47,853.00$47,853.00
Additional super under TTR$8,354.00

Because the TTR income Richard receives is from a taxed source, he receives this income completely tax free. Richard’s taxable income is greatly reduced, but his take home pay remains the same. The effect is that he has a greater overall increase to his super balance than Kerry.

This figure assumes a super balance of $150,000 and is a result of various calculations to maintain income level. It’s an example only for a 60 year old and shouldn’t be taken as financial advice. Using 2019/20 marginal tax rates.

Source: Industry Fund Services.

Other info you might be interested in

The basics of retirement

It’s important to think about how far your super will stretch, and whether it will be able to provide you the lifestyle you want

How to access your super in retirement

Choosing when and how you access your super in retirement is a really important decision, and everyone is different.

The role of financial planning

Good financial advice can help you set goals and make confident and informed financial decisions, now and in the future.

Learning Hub

Understand your super and the simple steps you can take to stay in control.

We're here to help

If you want to learn more or need help with making a decision about your super, you can get simple advice over the phone or face to face. It’s included as a part of your membership so there’s no extra cost.